Documenting Negotiations In Accordance With FAR 15.406-3

If you're an employee of the U.S. Government you've almost certainly dealt with FAR, or the Federal Acquisition Regulation. This hefty legal document covers the rules and regulations that the Government and prime contractors must abide by when working with each other.

In this article we'll look at a specific sub-section which covers an important step in any negotiations between Government and the prime contractor: the record of that negotiation.

As the responsibility for proper spending of Government funds is the contractor of the first resort and the contractor's responsibility, it's essential to be accurate and thorough in the recording of negotiations.

Any discrepancies may be discovered through a contractor Purchasing System Review, which is also known as a CPSR. This review process ensures that the contractor in charge is spending taxpayer funds in a way that is efficient.

In this article you'll have the ability to write a comprehensive documentation of negotiation which is in compliance with FAR 15.406-3, which is especially important for contracting officers who are accountable for collecting and submitting the necessary document to be included in the contract file.

What will each price negotiation memorandum be?
As a whole, the document that is discussed in this essay is known as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM is composed of eleven fundamental elements:

Section 1
The initial section is simple, since it simply describes the goal of the negotiation. The goals of negotiation can differ and include negotiation of a new contract with the basis of sole source or the negotiation of an equitable adjustment, etc. They are determined in the prenegotiation goal phase that is outlined within FAR 15.406-1.

Section 2
This section must outline the acquisition in its entirety that could comprise of materials, services, construction, or even real estate which the government is seeking to acquire, including all website relevant numbering. "Identifying numbers" includes things such as RFP (Request for Proposal) numbers which refer specifically to the proposal document that the contractor will propose.

Section 3
This section must include the name, position and organizational affiliation of each person representing an individual contractor, as well as the Government in negotiations.

Section 4
In this section, you should discuss the current status of any contractor systems that relate to negotiations. This might include accounting, purchasing, estimating and/or compensation. The section should be specific about how these systems were related to negotiation and the extent to which they were taken into consideration.

What portion of the FAR is concerned with contract pricing?
The next two sections are sort of related which is why we'll first look at the document in relation to. When a prime contractor submits bids, they should generally include an estimate of how much the project will cost i.e. a pricing proposal. If we look back to the construction example, the primary cost elements could be an estimate for material and labor costs for a particular task. In this case it is the FAR has a specific document for this purpose known by the name of Certificate of Current Cost or Pricing Data.

In FAR 15.406-2 there is an example of the document that contains the name of the company along with lines for your own name as well as your signature, title, and date of signing. This certificate certifies that, according to your understanding, the cost outline you have submitted is true. Also, this certificate is only required when prime contracts exceed $2 million which were issued on or following July 1, 2018. Let's review the specific guidelines for this document:

Section 5
This section covers instances where the certificate of current cost or pricing data wasn't required to determine reasonable contract pricing, even though the contract signed exceeded the threshold of $2 million. FAR 15.403-1 defines the scenarios where this certificate isn't necessary, but a few of them are:

If the contracting officer decides that prices agreed upon are from prices determined by law or regulation

If a product or commercial service is acquired

When modifying the terms of a contract or subcontract to commercial services or products

You can consult FAR 15.403-1 for the complete list, but , in essence, if your contract does not require a certificate of current cost or pricing information, Section 5 is required to specify the particular exception that allows you to skip the certificate and which basis your contract fits that exception.

Leave a Reply

Your email address will not be published. Required fields are marked *